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Earnings Estimates Lowered
Motilal Oswal cited several reasons for the reduced outlook. Lower profit margins from generic competition on g-Revlimid, combined with delayed launches of key products like semaglutide in Brazil and Canada, are affecting the company's prospects. Pricing pressures in Dr. Reddy's generics business and weaker operating leverage also contributed to the revised estimates.
The firm now forecasts earnings to slow down in FY25 and FY26, after strong performance in prior years. A further drop is expected in FY27 because of a slower rollout of niche products. Motilal Oswal consequently cut its earnings estimate by 25% for FY27 and 8% for FY28.
Valuation and New Target Price
Using these updated forecasts, Motilal Oswal values Dr. Reddy's at 18 times its 12-month forward earnings. This results in a new target price of Rs 1,195.
Future Outlook and Rating
While the short-term outlook is challenging, some niche products, like b-abatacept, are awaiting regulatory approval. A timely green light could boost FY28 earnings. However, Motilal Oswal maintains its Neutral rating on the stock, reflecting a balanced view of its future prospects amid current pressures.